AUD/USD Forex Signal: Cup-and-Handle Pattern Signals Further Upside
GlobePRwire
The AUD/USD exchange rate has shown renewed strength, rising for three consecutive sessions as the US dollar weakened amid mounting concerns over the independence of the Federal Reserve. The pair climbed to a high of 0.6720, marking a notable recovery from last week’s low of 0.6663.
Both fundamental catalysts and technical signals suggest that the Australian dollar may have further upside potential in the near term. In this article, LFtrade brokers break down the topic in a clear and accessible way.
AUD/USD Rallies as US Dollar Weakens
The recent AUD/USD rebound has been driven largely by softness in the US dollar, as investors reassess the political risks surrounding the Federal Reserve. Currency markets reacted swiftly as uncertainty increased over the Fed’s autonomy, a cornerstone of US monetary credibility.
At the same time, the Australian dollar benefited from a shift in risk sentiment, as traders rotated away from safe-haven assets. The combination of political uncertainty in the US and resilient domestic data in Australia has created a supportive backdrop for the pair.
Federal Reserve Independence at Risk
A major catalyst behind the dollar’s weakness was a statement by Federal Reserve Chair Jerome Powell, confirming that the Department of Justice (DoJ) had filed subpoenas related to the Fed’s headquarters renovation project. While the issue appears administrative on the surface, markets interpreted it as a politically motivated move.
Powell and many analysts believe the lawsuit reflects the US President’s desire for significantly lower interest rates. He has repeatedly criticized the Fed for maintaining restrictive monetary policy, arguing it has slowed economic growth.
Although Powell’s current term ends in May, he is legally entitled to remain on the Federal Reserve Board until 2028. Removing him prematurely would allow the US President to nominate a more dovish and politically aligned Fed official, potentially reshaping US monetary policy. This prospect has unsettled investors, leading to reduced confidence in the US dollar.
Strong Australian Household Spending Supports the AUD
Beyond US developments, the Australian dollar also gained support from strong domestic economic data. According to the Australian Bureau of Statistics, household spending surged by 6.3% year-over-year and 1.0% month-over-month in November.
This data is particularly significant because consumer spending represents one of the largest components of Australia’s GDP. Strong household demand signals that the Australian economy remains resilient, even amid global economic uncertainty.
Improved spending figures reduce the likelihood of aggressive interest rate cuts by the Reserve Bank of Australia (RBA), further enhancing the appeal of the AUD relative to the USD.
US CPI Data: The Next Key Catalyst
Looking ahead, the next major driver for the AUD/USD exchange rate will be the release of the US Consumer Price Index (CPI) data later today.
A softer inflation reading would reinforce expectations that the Federal Reserve is approaching the end of its tightening cycle, potentially paving the way for interest rate cuts later this year. This scenario would likely exert additional downward pressure on the US dollar.
Inflation is expected to continue trending lower in the coming months, driven by declining gasoline prices and falling mortgage rates. Mortgage rates recently dropped to their lowest levels in years after the US President reportedly urged officials to purchase $200 billion worth of mortgage-backed securities, further loosening financial conditions.
AUD/USD Technical Analysis: Bullish Patterns Emerge
From a technical perspective, the 12-hour chart shows that the AUD/USD pair has stabilized and strengthened over the past several sessions. Most notably, price action has broken above the key resistance level at 0.6700, which marked the highest swing on September 17.
The pair has formed an ascending channel, signaling a series of higher highs and higher lows, a classic indication of an ongoing uptrend. In addition, the chart reveals a well-defined cup-and-handle pattern, widely regarded as a bullish continuation formation in technical analysis.
Further strengthening the bullish case, AUD/USD remains above both the 50-period and 100-period Exponential Moving Averages (EMA). These moving averages are trending upward, confirming positive momentum and strong trend alignment.
AUD/USD Forecast: Bulls Target Higher Levels
Given the combination of favorable fundamentals and bullish technical signals, the most likely scenario is for the AUD/USD exchange rate to continue rising. Bulls are now targeting the next key resistance level at 0.6765, which represents the January 7 high.
A sustained break above this level could open the door to further upside, especially if upcoming US inflation data confirms a cooling price environment.
Conclusion
In summary, the AUD/USD forex pair is benefiting from a weaker US dollar, concerns over Federal Reserve independence, and robust Australian economic data. With a cup-and-handle formation, ascending channel, and support from key moving averages, technical indicators align with the bullish fundamental narrative.